The current student support system was introduced in 1998, following the Government's decision in 1997 to introduce tuition fees. Lord Dearing had led a review of higher education funding and had recommended that a contribution to tuition fee costsat a suggested rate of £1,000should be levied on those who benefit from higher education. We accepted that principle and introduced means-tested contributions to tuition fees at that level. We also substituted loans for grants and changed the loan repayment arrangements to income-contingent repayment (instead of mortgage-style). The system was fully in place from 1999.

The current system is based on a two-pronged approach:

 a contribution towards tuition fees for those who can afford it: and

 support for living costs through loans.

Specific measures have been introduced to encourage greater participation from under-represented groups in HE. As part of the Excellence Challenge programme aimed at increasing the numbers of young people from disadvantaged backgrounds applying for HE, we are providing 25,000 Opportunity Bursaries worth £2,000 each over three years. In addition, there is a range of grants for mature students and others who face high costs in completing their studies, students with disabilities, those with childcare responsibilities etc.

TUITION FEES

A fundamental principle of our 1998 reforms, and one which we still firmly believe, is that it is right that those who benefit from higher education should contribute towards its cost. Liability to pay is means-tested, with poorer students paying nothing. The maximum contribution towards tuition fees is currently £1,075. This represents only about a quarter of the average costs of a course. The remaining three quarters is met from public funds.

LIVING COSTS

Students in higher education can get loans to help with living costs. All full-time students are entitled to 75 per cent of the maximum loan, with the remaining quarter subject to income assessment. The rate of the loan varies according to whether the student lives at home or not; there is additional support for those in London. Interest is pegged to inflation, to maintain the value of the loans in real terms only. The interest rate for 2001-02 is 2.3 per cent. This is not a commercial rate of interest, which would apply to any other type of loan. The interest rate on student loans is zero in real terms because it is tied to the rate of inflation.

Loan repayments are linked to income. The threshold for repayment is set at £10,000, with borrowers repaying 9 per cent of their income above that threshold. This approach allows borrowers to repay their loans at a rate they can afford. For example: someone earning £12,000 a year would repay £15 a month; someone earning £17,000 a year would repay £52 a month. Most repayments are collected by employers as part of PAYE.

EXTRA SUPPORT

Students with additional financial needs, for example, those with disabilities or those who are lone parents may be entitled to specific grants in addition to the loans. In the years since 1998 we have introduced more grants targeted at particular groups of students eg the help with the cost of childcare. The Department is currently considering how this targeted support could be simplified and streamlined.

Hardship Loans of up to £500 were introduced in 1998 to provide additional targeted support for students facing financial difficulty£25.2 million is available in 2001-02. We have quadrupled the funding available to students through the discretionary Access and Hardship Funds, to help students in need, from around £22 million in 1997-98 to £93 million in 2001-02. Postgraduate and part-time students are eligible to apply for help from the Access and Hardship Funds.

A school meals grant was introduced in 2000-01 to help student parents with the costs of their children's school meals. £4 million was made available in 2000-01 and £6 million in 2001-02. We have also introduced a new childcare grant in 2001-02, focusing on the actual childcare needs of the most vulnerable students. Around £40 million is available for childcare grants, a combined travel/books/equipment grant and an additional dependants' grant for a first child in 2001-02.

Our 1998 reforms have brought about notable successes in the area of higher education and student support. Over the six years to 2003-04 we are investing an extra £1.7 billion in higher education in England, an 18 per cent increase in real terms. As a result, the amount of publicly planned funding per full-time equivalent student is set to increase in real terms in 2001-02 for the first time in over a decade, and we expect further expansion to be fully funded in the following two years. The numbers of home undergraduates in England has increased by 85,000 since 1996-97.

The review of higher education student funding is not about replacing a failing system. We remain committed to sharing the financing of HE amongst those who share the benefitGovernment, the individual and their families but in keeping with our stated aim of widening participation, we want to make sure that students are attracted into higher education and stay there, especially those who have traditionally not applied to HE but who can benefit from it. The review is still underway.

A table setting out the maximum levels of grants and loans for 2001-02 is enclosed.

Margaret Hodge MBE MP

May 2002

Student support entitlement 2001-02 for new entrants

Type of assistance

Entitlement

Help with tuition fees

Up to the maximum fee contribution of £1,075.

Student Loan

Up to £3,815 living away from home or £4,700 in London; £3,020 in the parental home.

Dependants' grant

Up to £2,425 for a first child or adult dependant, more for additional children as follows: £455 for under 11s; £910 for under 16s; £1210 for under 18s; £1740 for over 18s

Childcare grant

85 per cent of actual costs during term time and short vacations, 70 per cent during the long vacation. Up to £5,724 for one child and £8,480 for two or more children.

School meals grant

£250 for under 11s; £270 for over 11s, per child.

Travel, books and equipment grant

£500, but must be in receipt of dependants' grant for children, or childcare grant

Access bursary

Up to £500.

Hardship Loan

Up to £500

Hardship funds

According to need; usual minimum payment is £100

Disabled students allowances

Non-medical helpers allowance of up to £10,755 a year; a general DSA of up to £1,420 a year (both reduced for part timers); Specialist equipment allowance of up to £4,255 for the whole course; actual travel costs.

Care leavers' grant

For students under 21up to £100 per week to help with accommodation costs in long vacation.

Opportunity Bursary (7,000 in 2001-02; 8,200 for those entering HE this September and 10,000 for those entering in September 2003). 25,000 in total across the three years of the Excellence Challenge from September 2001

For students under 21 from EiC/EAZ areas only£2,000 (£1,000 paid in year one)